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Big General Growth

The purchase of Victoria Ward makes it one of Hawaii’s top three landowners

November, 2002

In May, several weeks after General Growth Properties Inc. (NYSE:GGP), the Illinois-based owner of the Ala Moana Shopping Center, agreed to buy competitor Victoria Ward Ltd.’s 65 acres in Kakaako, including the Ward Centre, Ward Warehouse and the new Ward Entertainment Center, General Growth Chief Executive Officer John Bucksbaum received a visitor from Hawaii in his Chicago offices. That visitor was former Victoria Ward Chief Executive Officer Mitch D’Olier.

“I went and made a sales call on General Growth in Chicago to explain to them what they had after the transaction,” D’Olier recalls. “There was some concern on both of our parts, because we were competitors before and it was like, ‘Can we trust the enemy?’”

D’Olier had been deeply involved on behalf of the shareholder descendants of Victoria Ward, with the Hawaii Community Development Authority and neighboring landowner Kamehameha Schools, in plans to redevelop the Kakaako area and build a shopping and entertainment village where people could live, work and play. After hearing Bucksbaum speak to the Urban Land Institute’s Hawaii District Council in September, D’Olier says, “I think he’s got it.”

The acquisition of Victoria Ward Ltd. shot General Growth upHawaii Business’ Top 20 Wealthiest Landowners list from No. 6 last year to No. 3, with a total 2001 tax assessed value of more than $1 billion. So far, Wall Street is applauding the $250 million acquisition of Victoria Ward. Morgan Stanley analyst Matt Ostrower says, “First and foremost, we care if companies are deploying capital at attractive rates of return. We think that GGP did that. But over the long term, they also executed a pretty clever defensive move. I think it will be very difficult for anyone else to develop a big mall on that island.”

Bucksbaum says his first impression of the Victoria Ward properties as he walked around one day in April, was that it could be the best, most exciting opportunity to come his company’s way. General Growth, a Real Estate Investment Trust (REIT), is the country’s second largest shopping center owner, developer and manager. In August, its portfolio included 167 regional shopping malls in 41 states. Hawaii properties generate about 12 percent of the company’s net operating income, which was $183.4 million for the quarter ended June 30, 2002. “We do have a very big investment that represents a very sizable piece of our company, so what we think about is, ‘How can we improve the assets in Hawaii?’” he says.

Bucksbaum says the planning process will take more, rather than less time, and declines to set a timetable. He says General Growth has stressed its willingness to work together with HCDA and Kamehameha Schools in developing Kakaako. He says, “I think the beauty of this is that it seems to me that we all do want to achieve the same thing, to take this great opportunity and make it into this exciting urban opportunity that does have people and interesting things, entertainment pieces, places to live, places to work.”

He speaks of “unlimited opportunity” to take the Victoria Ward property to a different level, but Bucksbaum declines to go into detail. “We’re big fans, big proponents of farmers’ markets, but that one could probably be improved upon and made even better. How do you do it? I don’t have any answer yet. I think it’s just an opportunity that exists, but it’s already a good situation.”

He says two Mainland areas that work are: The Grove in Los Angeles, which is a new Nordstrom-anchored lifestyle center, and Chicago’s Navy Pier, a family entertainment center. Bucksbaum says he originally was not a believer in that waterfront destination, which reopened in 1995 after a $150 million redevelopment effort. Today, it features entertainment, shops, restaurants, a Ferris wheel and a courtyard-style Shakespearean theatre. Bucksbaum says, “It’s a destination more to go to and be entertained by being around other people, street performers, water fountains, big, cool boats that are docked along the lake there. There’s certainly some things to learn from Navy Pier.”

Sanford Murata, director of Kamehameha Schools’ Commercial Assets Division, says, “I think that if they take the enlightened point of view in how they develop Kakaako, Kakaako will be the place to live in Hawaii in the long term. It’s going to be the heart of Honolulu, without a doubt.”

Morgan Stanley’s Ostrower says, “Frankly, I just believe it’s in good hands and General Growth is going to do things that I think people in Hawaii are going to be very happy about, because that’s how General Growth will make the most money – is doing things that people want that are demanded by the market.”